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Band Tax Tips
Two guitars bass and drums...
Three vocals across the front. Four mixes, house and lights. Sounds
like a band to me but there are two sides to this. What is happening on
the stage is the result of musical desire, preparation and dedication
to music. When the PA powers down and the club hands you the cash, it's
not just a band anymore, its a business. How that cash (or check) is
handled affects everyone in the band. Before reading the rest of this
page it may be a good idea for you to read the business entities
section on this site. There are several options and many different ways
to run the business side of a band. It usually starts with a simple
structure for live gigs, but as the career develops into publishing,
recording, licensing, merchandising and all the other income streams
that a successful band generates it quickly gets complicated. The first
step is to get a tax id number so subcontracted expenses can be
reported on Form 1099 and keep your social security number out of the
file cabinet at the bar down the street. If the club hands you a W-4
form and you don't have a tax id number then somebody is putting their
social security number on that form before the band gets paid. Lets
look at a handful of options for how the dollars and tax
responsibilities can work.
Option 1:
DESIGNATE A BAND LEADER This person may not be the musical force behind
the band, but definitely should be the best record keeper. The
bandleader applies for the tax id number. At this point all the income
is going to him or her from outside sources. This is where having a
business checking account really helps out. At the end of the gig the
money gets split as per the groups wishes but it is the bandleader who
must account for it. He or she at the end of the year will be required
to issue a 1099 misc form to each member of the band for his or her
share of the income. Failure to issue 1099’s results in substantial
penalties and the possibility of the bandleader becoming liable for the
income of the entire group. Any subcontractor, agents, studios,
repairmen, sound crews, or anybody else that earns over $600 from the
group should receive form 1099 from the bandleader.
Option 2:
FORM A PARTNERSHIP. It is my opinion that partnerships are the messiest
form of business entity. It is however sometimes the only choice. A
partnership is a separate legal entity, which the band will operate as.
The profits or loss from the partnership passes through the to owners
after the business tax return is complete. It takes an accountant to
deal properly with a partnership. Each member needs to put a little
money into the partnership, which is his or her original basis in the
entity. As money is earned and retained in the business, this basis
account is adjusted. I never advocate allowing the partnership to
purchase instruments. PA and lighting is another story, but each member
should own his or her own instruments. Never form a partnership without
help from an outside attorney who will help you craft your operating
agreement. You should decide how the partnership will break up on the
very day it starts.
Option 3:
FORM A CORPORATION. If we are making some money it may well suit you to
not only form a single corporation, but multiple corporations to handle
different aspects of the groups affairs. If you are at this stage of
the game, you should already have a dedicated accounting firm working
with you and possibly a business manager as well. Your business team
should be firmly in place. Someone in the band can certainly serve as
the tour accountant, royalty accountant, and merchandise inventory
contact who would report to the tax counsel or you can engage a firm or
subcontractor to handle these duties. It starts to make sense knowing
the rest of the story why a ticket to see the Eagles costs $150. There
are guitar techs, crew, sound, lights, and ACCOUNTANTS all exacting a
commission on that single ticket price.
Strategy
Not all options work for everyone in a band so I tend to interview
everyone and have a look at the previous years personal tax returns
before forming a strategy for the business end of a band. A good
strategy reduces income tax to an acceptable level, allows management
to navigate the business structure with a minimum of hassle, and allows
the members investment options both personally and as a free standing
entity. Not so easy is it? Having an understanding and helpful tax firm
to help work this out will keep the internal politics from boiling over
about issues that not everyone is interested in.
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